The Chinese Aren't Coming – Get Real, They’re Here

It’s about time we dropped the fantasies about our budding special relationship and get real about what Beijing wants from Israeland what we’re prepared to give.

AFP

“The Chinese are coming!” Thus investment funds, tycoons, and high-tech entrepreneurs have been proclaiming with delight as they sell businesses to Chinese firms for top dollar. But the fact is, the Chinese are already here, and from the looks of things, they’ll be staying for some time to come.

In just the last two months, Israel’s biggest food company, Tnuva, was formally turned over to the Chinese company Bright Food. Our fourth-largest insurer, Phoenix, is about to be acquired by China’s Fosun Group, and there are good odds that the No. 2 insurer, Clal Insurance, will end up in Chinese hands later this year, since three out of the seven bidders are Chinese or Hong Kong companies. And just last week, med-tech company Lumenis was bought by Hong Kong’s XIO Group.

In March, the Shanghai International Port Group won a tender to operate the city of Haifa's new port, when it has one, while China Harbor has been hired to build the new port in Ashdod. Last month, a joint venture between China Railway Group and Israel’s Solel Boneh won the contract to develop the first segment of Tel Aviv’s light rail.

Chinese investment in Israeli technology startups has tripled since 2012, to $302 million last year. In the first four months of 2015, the figure was already $117 million.

What Beijing really wants

Three things immediately emerge from this buzz of activity. One is that even though everyone talks about a marriage made in heaven between Israeli technology and Chinese industry, the biggest deals of have been in older industries and infrastructure. The second is the long-term nature of many of these acquisitions: You don’t buy an insurance company or win the franchise to operate a port with the intention of bailing out after a few years with quick profits. The third is really a question: should we be worried?

Not only is China here, it’s here to stay and is going to be investing more in the years ahead.

Since it abandoned Maoist economics more than three decades ago, China has been the recipient of foreign investment. But the last decade, as the Chinese economy has grown and become more sophisticated, the flow has begun to reverse.

By last year, Chinese companies were investing almost as much abroad as foreigners were investing in China. Chinese companies have been buying iconic companies in Europe, like Volvo and Pirelli; real estate in America, like the Waldorf Astoria Hotel; and mines in Africa and Latin America.

Though many would like to think that China’s commercial interest in Israel is something special -- part of a budding special relationship that some of the dreamiest Israelis fantasize will supplant American and Europe -- we’re just a teaspoon in the flood of Chinese overseas investment.

Not warm and fuzzy

The Chinese may respect Jews as one of the few peoples of the world who can match them for historical longevity. They may admire Israel’s technology prowess and (to the joy of Bibi) have little interest in tying business to human rights.  They may even appreciate Israel’s increasingly strident nationalism, which China shares.

But it would be a mistake to think that touchy-feely factors like these are at the core of the Israel-China relationship. China is a self-consciously rising superpower, attuned to its interests first and foremost.

China has a great scheme in mind for the MidEast-Asian region and it isn't to win over hearts. Photo: Reuters

Take the Haifa port contract. “It’s winning is an expression of confidence in the State of Israel by a superpower, which has decided to invest billions of shekels in Israel and turn it into an international cargo center for all the world,” Transportation Minister Israel Katz crowed after Shanghai International Port won the tender.  He talked as if China was making love to us.

But the big picture suggests something very different. Two years ago, Beijing unveiled its New Silk Road initiative, which envisages building two massive trade corridors – one overland following the ancient Silk Road and a second all-water route skirting under Asia – to feed China’s nearly insatiable appetite for energy and other natural resources and to deliver its exports across Asia and into Europe.

The Haifa port is a mere cog  in that great scheme, which involves building and managing transportation infrastructure in places as far away as Pakistan and as close as Greece (where a Chinese company manages the Piraeus port). The much-talked about Red-Med railway project, a high-speed rail link between Eilat and the Mediterranean, is part and parcel of the same initiative, a parallel transportation corridor to the Suez Canal.

But bear in mind, China isn’t favoring Israel over Egypt: It’s already invested $1.5 billion in a Suez Canal development zone and is being courted to put money into second channel Egypt is planning astride the existing canal.

Made in "China"

What does all this mean for Israel, or for that matter the many other countries that are enjoying the largesse of Chinese investment today? “Italian industrial policy is now made in Beijing,” lamented Romano Prodi, a former Italian prime minister, on hearing a few weeks ago that China National Chemical Corporation would buy the Pirelli tire company.

In fact, the same company bought Israel’s Makhteshim Agan in 2011, although at the time most Israelis were flattered rather than fearful.

The fact is that no one, including Prodi, really knows – perhaps even the Chinese don’t know where their spreading wings will take them. But there are good reasons for Israel to be more wary of the Chinese embrace than it has been.

On the one hand, our high-tech industry, which is long on innovation and very short on manufacturing, has a lot to gain from teaming up with China’s industrial giants. On other hand, involving China so deeply infrastructure projects carries a risk, because no one knows where the corporate interests of the companies buying into Israel ends and the interest of the Chinese government ends.

Will the new Haifa port be run mainly as a waystation for Chinese trade, or as a conduit for Israeli exports and imports? Will we one day find Beijing interfering in Israel’s security policy out of concern for the safety of its local assets or because war would interfere with its trade routes? Will China employs its own managers and enforce the Chinese way of doing business in Israel? It could be that none of this ever happens, but we should be considering the risks that it will.

Israel has no reason to shun China – quite to the contrary, it’s an economic power we can’t ignore – but it’s time to get a little more real about  what the Chinese want and what are prepared to give.